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EXHIBIT 10.17
EXPENSE ALLOCATION AND PARTICIPATION AGREEMENT
R E C I T A L S:
▇. ▇▇▇▇▇▇▇ Oil & Gas, L.P., a Delaware limited partnership ("BOG"),
is active in the exploration and development of oil and gas properties in the
domestic United States.
B. Middle Bay Oil Company, Inc. an Alabama corporation ("Middle
Bay"), desires to participate with BOG in the drilling of ▇▇▇▇▇ on properties
owned or hereafter acquired, in whole or in part, by BOG, during the term
hereof and otherwise upon and subject to the provisions herein contained.
A G R E E M E N T:
FOR A GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, BOG and Middle Bay hereby act, agree and
covenant as follows:
Section 1. DEFINED TERMS. As used herein, the following terms shall have
the following meanings:
"Account Balance" means the total amount of money at any
particular time in the Escrow Account, which amount shall include any
accrued interest.
"Affiliate" means, with respect to any Person: (a) any other
Person directly or indirectly owning, controlling or holding with power to
vote 10% or more of the outstanding voting securities of such Person, (b)
any other Person 10% or more of whose outstanding voting securities are
directly or indirectly owned, controlled or held with power to vote by
such Person, and (c) any other Person directly or indirectly controlling,
controlled by or under common control with such Person.
"Agreement Term" means the period beginning on the date hereof at
7:00 a.m. CST, and ending on the earlier to occur of (i) March 31, 1997,
at 11:59 p.m. CST, or (ii) the date on which Middle Bay's 25% share of the
Drilling Costs incurred in drilling the Subject ▇▇▇▇▇ and Subsequent ▇▇▇▇▇
equals or exceeds $1,500,000.00. However, in the event that it reasonably
appears to BOG that such $1,500,000.00 amount will be reached before March
31, 1997 based upon the Drilling Costs incurred to that point in time and
BOG's estimate of future Drilling Costs, BOG shall give Middle Bay written
notice that such amount will probably be reached before March 31, 1997 and
Middle Bay shall have the option to nonetheless extend the term of this
Agreement to 11:59 p.m. CST on March 31, 1997, by giving BOG written
notice of such extension no less than fifteen (15) days after Middle Bay's
receipt of BOG's notice.
"Applicable Environmental Laws" means any federal, state and/or
local laws, rules, orders or regulations, whether now existing or
hereafter enacted, modified or amended, relating to health or to the
protection of the environment, including without limitation the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended by the Superfund Amendments and Reauthorization Act of
1986, the Resource Conservation and Recovery Act of 1976, a amended by the
Used Oil Recycling Act of 1980, the Solid Waste Disposal Act Amendments of
1980, and the Hazardous and Solid Waste Amendments of 1984.
"Assigned Interests" shall have the meaning assigned to it in
Section 9 hereof.
"Assignment" means any assignment executed pursuant to Section 9
hereof by BOG in favor of Middle Bay.
"BOG Account" shall be the BOG bank account designated by BOG to
Middle Bay in writing from time to time.
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"BOG Account Balance" means the balance of the funds that
have been deposited into the BOG Account from the Escrow Account for
Middle Bay's share of BOG Drilling Costs and BOG Completion Costs which
have not yet been paid or advanced to the drilling operator, together with
any interest earned from such funds in the BOG Account, net of all bank
fees and other charges incurred with respect to the BOG Account.
"BOG Completion Costs" means, with respect to any particular
Subject Well or Subsequent Well, BOG's share of the Completion Costs
associated with such Subject Well or Subsequent Well. For purposes of the
foregoing, "BOG's share" of Completion Costs shall be determined based
upon the share of Completion Costs allocable to BOG Properties (a) without
regard to any other agreement whereunder a third party agrees to carry BOG
for all or any portion of what would otherwise be BOG's share of
Completion Costs relative to any particular Subject Well or Subsequent
Well, (b) without regard to any agreement whereunder BOG agrees to carry a
third party for a share of such third party's Completion Costs, and (c)
with regard to and taking into account any additional interest (and
attendant share of Completion Costs) in any particular Subject Well or
Subsequent Well which BOG may acquire, temporarily or permanently, due to
the election by one or more third parties not to participate in the
Completion of such Subject Well or Subsequent Well. By way of
illustration, assume that BOG owns (or is entitled to earn, under a
farmout agreement or otherwise) a 25% interest in a lease covering 100% of
the mineral fee interest in Tract A, and ABC Oil Company ("ABC") owns 25%
and CDE Oil Company ("CDE") owns the remaining 50% interest. If BOG
proposes the Completion of a Subject Well or Subsequent Well on Tract A
and all of BOG, ABC and CDE elect to participate therein, BOG's share of
the Completion Costs associated with such well would, in typical
circumstances, be 25%. If, however, ABC elects not to participate in the
Completion of the well and BOG and CDE elect to proceed to Complete the
well and each acquire a proportionate part of ABC's non-consent interest,
BOG's share of the Completion Costs would, in typical circumstances, be
33.333%. In the event ABC has the right to again participate in the well
after, for example, payout of a nonconsent penalty, the interests of BOG
and Middle Bay shall both proportionately be reduced to take into account
the after payout interest of ABC. In both of the examples set out above,
assume further that XYZ Oil Company ("XYZ") has agreed to carry BOG for
50% of what would otherwise be BOG's share of Completion Costs in order to
earn 25% of BOG's interest in the well. Under such circumstances, the BOG
Completion Costs shall be determined without regard to XYZ's agreement to
pay 50% of what would otherwise be BOG's share of the Completion Costs
associated with the well, but the 25% interest BOG is obligated to assign
to XYZ shall be taken into account in determining the interest in any
particular BOG Property subject to this Agreement. As such, in this
example in which XYZ has agreed to pay 50% of BOG's share of Completion
Costs in return for 25% of BOG's interest in the Subject Well or
Subsequent Well, as BOG's interest in the well is reduced to 18.75% in the
example in which all of the parties elected to participate and to
24.99975% in the example in which ABC elected not to participate in order
to account for XYZ's earned interest, the BOG Completion Costs associated
with such well would be reduced to BOG's reduced interest in the Subject
Well or Subsequent Well.
"BOG Drilling Costs" means, with respect to any particular Subject
Well or Subsequent Well, BOG's share of the Drilling Costs associated with
such Subject Well or Subsequent Well. For purposes of the foregoing,
"BOG's share" of Drilling Costs shall be determined based upon the share
of Drilling Costs allocable to BOG Properties (a) without regard to any
other agreement whereunder a third party agrees to carry BOG for all or
any portion of what would otherwise be BOG's share of Drilling Costs
relative to any particular Subject Well or Subsequent Well, (b) without
regard to any agreement whereunder BOG agrees to carry a third party for a
share of such third party's Drilling Costs, and (c) with regard to and
taking into account any additional interest (and attendant share of
additional Drilling Costs) in any particular Subject Well or Subsequent
Well which BOG may acquire, temporarily or permanently, due to the
election by one or more third parties not to participate in the drilling
of such Subject Well or Subsequent Well. By way of illustration, assume
that BOG owns (or is entitled to earn, under a farmout agreement or
otherwise) a 25% interest in a lease covering 100% of the mineral fee
interest in Tract A, and ABC Oil Company ("ABC") owns 25% and CDE Oil
Company ("CDE") owns the remaining 50% interest. If BOG proposes the
drilling of a well on Tract A and all of BOG, ABC and CDE elect to
participate therein, BOG's share of the Drilling Costs associated with
such well would, in typical circumstances be 25%. If, however, ABC elects
not to participate in the drilling of the well and BOG and CDE elect to
proceed to drill the well and each acquire their proportionate part of
ABC's non-consent interest, BOG's share of the Drilling Costs would, in
typical
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circumstances, be 33.333%. In the event ABC has the right to again
participate in the well after, for example, payout of a nonconsent
penalty, the interests of BOG and Middle Bay shall both proportionately be
reduced to take into account the after payout interest of ABC. In both of
the examples set out above, assume further that XYZ Oil Company ("XYZ")
has agreed to carry BOG for 50% of what would otherwise be BOG's share of
Drilling Costs in order to earn 25% of BOG's interest in the Subject Well
or Subsequent Well. Under such circumstances, the BOG Drilling Costs
shall be determined without regard to XYZ's agreement to pay 50% of what
would otherwise be BOG's share of the Drilling Costs associated with the
well, but the 25% interest BOG is obligated to assign to XYZ shall be
taken into account in determining the interest in any particular BOG
Property subject to this Agreement. As such, in this example in which XYZ
has agreed to pay 50% of BOG's share of Drilling Costs in return for 25%
of BOG's interest in the Subject Well or Subsequent Well, as BOG's
interest in the well is reduced to 18.75% in the example in which all of
the parties elected to participate and to 24.99975% in the example in
which ABC elected not to participate in order to account for XYZ's earned
interest, the BOG Drilling Costs associated with such well would be
reduced to BOG's reduced interest in the Subject Well or Subsequent Well.
"BOG Participation Agreements" means any agreements now or
hereafter existing whereunder BOG agrees with certain third parties upon
terms and conditions of joint exploration and/or development of oil and/or
gas properties located in the domestic United States, including without
limitation the existing participation agreements described in Exhibit A
hereto, as same may be amended, modified or extended from time to time.
"BOG Properties" means BOG's undivided right, title and interest
in and to any property, right or interest that gives BOG the right to
drill for and produce oil, gas and associated hydrocarbons in any of the
lands described in Exhibit B, whether now owned or hereafter acquired by
BOG during the term hereof; BOG Properties shall in no event include any
overriding royalty interest owned by or owing to BOG, whether pursuant to
a Participation Agreement or otherwise. However, in the event that prior
to the Completion of a Subject Well BOG has assigned or has agreed to
assign interests in properties, rights or interests which are related to
such Subject Well or the Drilling and Production Unit for the applicable
Subject Well, the interests in such properties, rights or interests which
BOG has assigned or agreed to assign shall not be part of the BOG
Properties for purposes of this Agreement. In addition, anything to the
contrary contained herein notwithstanding, in the event that BOG Drilling
Costs with respect to any particular Subject Well are estimated, as set
out in the initial authority for expenditure or "AFE" circulated for the
drilling of such Subject Well (which AFE may be circulated by BOG or by
some third party), to exceed $280,000.00, BOG's undivided interests in and
to the properties, rights and interests included in the Drilling and
Production Unit for such Subject Well shall be reduced in the same
percentage by which the estimated BOG Drilling Costs exceed $280,000.00,
and that reduction amount shall not be a part of the BOG Properties and
shall otherwise be excluded from this Agreement for all purposes. By way
of illustration, assume that (a) the estimated BOG Drilling Costs for any
particular Subject Well is $336,000.00 and thus exceeds the amount of
$280,000.00 by exactly 20%, (b) the Drilling and Production Unit for such
Subject Well covers 80 acres and as part of the BOG Properties BOG owns
and undivided 70% interest in an oil and gas lease (for purposes of this
example referred to as the "Lease") covering 60 net mineral acres in such
Drilling Unit and an undivided 40% interest in the minerals (for purposes
of this example referred to as the "Minerals") covering the other 20 net
mineral acres in the Drilling and Production Unit. Under this example,
20% of BOG's interest in both the Lease and the Minerals would be excluded
from the BOG Properties; as such, an undivided 56% (i.e. 80% of BOG's 70%)
interest in the Lease and an undivided 32% (i.e. 80% of BOG's 40%)
interest in the Minerals would constitute the BOG Properties for the
Drilling and Production Unit for such Subject Well. Notwithstanding any
provision hereof to the contrary, the original estimate of BOG Drilling
Costs as set forth in the initial AFE circulated relative to any Subject
Well will always, unless BOG and Middle Bay mutually agree to the
contrary, definitely be utilized for purposes of determining whether and
by how much the above-described $280,000.00 benchmark has been exceeded.
"Casing Point" means the time when the well has been drilled to
the objective depth stated in the initial notice, appropriate tests have
been made, and the drilling operator notifies all of the participating
parties of his recommendation with respect to completing or plugging and
abandoning the well.
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"Complete" or "Completion" means a single operation designed to
complete a Subject Well or Subsequent Well as a producer in one or more
zones, including without limitation the setting of production casing,
perforating, and, where necessary or appropriate, well stimulation.
"Completion Costs" means the costs and expenses associated with
any attempted Completion of a Subject Well or Subsequent Well. In
addition, in the event that Completion operations are attempted within a
well but the well is not ultimately completed as a producer, the costs
incurred to plug and abandon such well shall also constitute Completion
Costs for purposes of this Agreement.
"Consent" means any right of a third party to grant or deny its
consent to the execution of this Agreement or the consummation of all or
any part of the transactions contemplated herein, including without
limitation any consents provided for or otherwise disclosed in the
existing BOG Participation Agreements.
"Drilling Costs" means all costs and expenses related to (a) the
preparation for drilling and then the drilling and equipping of a well up
and to Casing Point, and (b) all activities associated with plugging and
abandoning a well in which Completion operations have not been attempted.
Without limitation of the generality of the foregoing, Drilling Costs
shall include all costs associated with (i) clearing and building a
location and creating or improving access to such location (e.g., by
building roads), (ii) setting surface casing, and (iii) logging and
testing the well prior to the commencement of Completion operations.
"Drilling and Production Unit" means, with respect to any
particular well, the acreage allocable, as determined by reference to the
formation initially Completed in such well, to such well under applicable
laws, rules or regulations of governmental authorities having jurisdiction
for the drilling and production of such well at a legal location and the
production from such well of its maximum allowable, such maximum allowable
to be determined by reference to the lesser of (a) the maximum permissible
allowable for such well as set by any governmental authority having
jurisdiction, and (b) such well's maximum prudent physical productive
capability, as determined by reference to the initial potential test or
initial deliverability test, as the case may be, for such well, limited in
each instance to those depths between the surface and 100 feet below the
deepest depth drilled in the relevant well; the exact configuration of any
such Drilling and Production Unit shall be designated by BOG utilizing
reasonable discretion and good faith. In the event that no governmental
authority having jurisdiction has promulgated any laws, rules or
regulations pursuant to which the Drilling and Production Unit for any
particular well can be determined as set forth in the immediately
preceding sentence, BOG shall, utilizing reasonable discretion and good
faith, designate a Drilling and Production Unit for such well. However,
in the event that after a Drilling and Production Unit is established for
a Subject Well as provided herein, the Drilling and Production Unit for a
Subject Well that has been completed as a producer is reconfigured or
otherwise altered or changed under law, rule, order or regulation of any
governmental authority having jurisdiction, commencing with the effective
date of such change, the Drilling and Production Unit for such Subject
Well shall be deemed to have been altered as required by the law, rule,
order or regulation and the Parties shall execute all conveyance
instruments necessary to cause Middle Bay to own the interests (and only
the interests) in the BOG Properties which are included within the revised
Drilling and Production Unit; provided, however, that in the event that
prior to the change in the Drilling and Production Unit a well has been
drilled on acreage (or lands pooled or otherwise combined therewith) which
was not previously included within such Drilling and Production Unit or
BOG has assigned interests in acreage which was not previously included
within such Drilling and Production Unit, BOG shall not be required to
assign such well (or any production therefrom) or interests to Middle Bay
despite the later inclusion of such well or acreage in the Drilling and
Production Unit. Similarly, in the event that prior to a change in a
Drilling and Production Unit a Subsequent Well has been drilled on acreage
which was previously included within such Drilling and Production Unit and
Middle Bay participated in the drilling of such Subsequent Well as
provided in Section 9(b) below, Middle Bay shall not be required to assign
its interest in such Subsequent Well (or any production therefrom) to BOG
despite the later exclusion of such Subsequent Well or acreage from the
Drilling and Production Unit. The Drilling and Production Unit for any
particular Subject Well shall in no event include any acreage and/or
depths otherwise allocable to the drilling and spacing, proration or
pooled unit reasonably and in good faith designated by BOG for any other
well, the actual drilling of which was
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commenced prior to the date hereof, in which BOG owns an interest and
which does not constitute a Subject Well.
"Escrow Account" shall mean the escrow account to be established
at the Bank of Oklahoma, Tulsa, Oklahoma, and governed by the escrow
agreement which is attached hereto as Exhibit D.
"Initial Deposit" shall have the meaning assigned to it in Section
8 hereof.
"Initial Period" shall have the meaning assigned to it in Section
8 hereof.
"Person" means, an individual, corporation, partnership, limited
liability company, association, joint stock company, pension fund, trust
or trustee thereof, estate or executor thereof, unincorporated
organization or joint venture, court or governmental unit or any agency or
subdivision thereof, or any other legally recognizable entity.
"Preferential Rights" means a preferential right or option in
favor of a third party to acquire all or a portion of a BOG Property, or
to otherwise participate with BOG in the exploration, or development
thereof.
"Routine Governmental Approvals" means the right of any
governmental entity to consent to or approve the transfer of any interest
in a BOG Property.
"Seismic Data" means all data secured by or on behalf of BOG in
the conduct of 3-D seismic operations on, across or through the BOG
Properties, including any tapes, reproducibles and interpretations.
Seismic Data shall not include any data which BOG, in its sole and
absolute discretion, deems to be subject to a confidentiality restriction
imposed by or for the benefit of a third party.
"Shortfall Deposit" means any additional funds required to be
deposited by Middle Bay with BOG pursuant to subsections 8(b)(iii) and
8(c)(iii) hereof.
"Subject Well" means each well on a BOG Property, or on lands
pooled or unitized therewith, for which drilling operations are actually
commenced after the commencement of the Agreement Term and for which
Middle Bay's share of the BOG Drilling Costs for such well have been
forwarded to the drilling operator for such well prior to the expiration
of the Agreement Term in accordance with the terms of Section 8 below,
regardless of when the well was proposed; the term Subject Well shall not
include (a) any well in the drilling of which BOG elects not to
participate, or (b) any recompletion, deepening, side track, plug back,
rework or other operation in a wellbore already in existence at the time
the subject new operation is proposed. For purposes of this definition
drilling operations for a well shall not be deemed to have been "actually
commenced" unless and until a drill bit is turning in the ground at the
well's surface location utilizing a drilling rig that is capable of
drilling the well to its proposed total depth. The Parties recognize and
agree that any well which is drilled within the Drilling and Production
Unit (or on lands pooled or unitized therewith) of a well for which
drilling operations were actually commenced prior to the Agreement Term,
shall not be a Subject Well or Subsequent Well for purposes of this
Agreement and such a well shall not be subject to this Agreement, to the
effect that Middle Bay shall not be obligated to pay any share of the
Drilling Costs associated with any such well or ▇▇▇▇▇ and shall further
have no right to receive assignment of any interest therein (or in any
Drilling and Production Unit otherwise allocable thereto). In addition,
in the event that BOG and Middle Bay mutually so agree with respect to any
particular well or ▇▇▇▇▇ proposed to be drilled during the Agreement Term,
such well or ▇▇▇▇▇ shall not become Subject ▇▇▇▇▇ and shall otherwise not
be subject to this Agreement, to the effect that Middle Bay shall not be
obligated to pay any share of the Drilling Costs associated with any such
well or ▇▇▇▇▇ and shall further have no right to receive assignment of any
interest therein (or in any Drilling and Production Unit otherwise
allocable thereto).
"Subsequent Deposit" shall have the meaning assigned to it in
Section 8 hereof.
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"Subsequent Period" means each of (a) the period
beginning on July 1, 1996 and ending on September 30, 1996, (b) the period
beginning on October 1, 1996 and ending on December 31, 1996, and (c) the
period beginning on January 1, 1997 and ending on March 31, 1997.
"Subsequent Well" shall have the meaning assigned to it in
subsection 9(b) hereof.
"Termination Amount" means the amount determined utilizing the
following formula:
EW x ADC x AWI x 12.5% x ▇▇ - ▇▇
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EW
where EW is the number of Subject ▇▇▇▇▇ BOG estimates will be drilled
during the Agreement Term, ADC is the average of BOG's estimate of all
Drilling Costs for EW, calculated based on 8/8ths of such Drilling Costs,
AWI is the average working interest BOG estimates it will have in the EWs,
and AW is the actual number of Subject ▇▇▇▇▇ drilled hereunder during the
Agreement Term and prior to termination of this Agreement pursuant to
Section 10 hereof. For purposes hereof, the parties stipulate that EW is,
based on BOG's estimate, 87 ▇▇▇▇▇, AWI is, based on BOG's estimate, 25%
and ADC is, based on BOG's estimate, $264,000.
Section 2. REPRESENTATIONS OF BOG. BOG represents to Middle Bay that:
(a) BOG is a limited partnership, duly formed and legally
existing under the laws of the State of Delaware. BOG has full power to
enter into and perform its obligations under this Agreement and has taken
all appropriate action to authorize entering into this Agreement and
performance of its obligations hereunder. Other than requirements (if
any) that there be obtained Consents or waivers of Preferential Rights,
and except for Routine Governmental Approvals which are customarily
obtained post-closing and which BOG has no reason to believe cannot be
obtained, neither the execution and delivery of this Agreement, nor the
consummation of the transactions contemplated hereby, nor the compliance
with the terms hereof, will result in any material default under any
material agreement or instrument to which BOG is a party or by which the
BOG Properties are bound, or violate any order, writ, injunction, decree,
statute, rule or regulation applicable to BOG or to the BOG Properties.
This Agreement constitutes the legal, valid and binding obligation of BOG,
enforceable in accordance with its terms, except as limited by bankruptcy
or other laws applicable generally to creditor's rights and as limited by
general equitable principles.
(b) There are no suits, actions, claims, investigations,
inquiries, proceedings or demands pending (or, to the best of BOG's
knowledge, threatened) which affect the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
THE EXPRESS REPRESENTATIONS OF BOG CONTAINED IN THIS SECTION OR IN ANY
ASSIGNMENT EXECUTED PURSUANT HERETO ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AND
BOG EXPRESSLY DISCLAIMS ANY AND ALL SUCH OTHER REPRESENTATIONS AND WARRANTIES.
WITHOUT LIMITATION OF THE FOREGOING, UNDIVIDED INTERESTS EARNED BY MIDDLE BAY
HEREUNDER IN THE BOG PROPERTIES SHALL BE CONVEYED WITHOUT ANY WARRANTY OR
REPRESENTATION, WHETHER EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, RELATING TO
THE CONDITION, QUANTITY, QUALITY, FITNESS FOR A PARTICULAR PURPOSE, CONFORMITY
TO THE MODELS OR SAMPLES OF MATERIALS OR MERCHANTABILITY OF ANY EQUIPMENT OR
ITS FITNESS FOR ANY PURPOSE AND MIDDLE BAY SHALL ACCEPT ALL OF THE SAME IN
THEIR "AS IS, WHERE IS" CONDITION. BOG MAKES NO WARRANTY OR REPRESENTATION,
EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, AS TO THE ACCURACY OR COMPLETENESS OF
ANY DATA, INTERPRETATIONS, REPORTS, RECORDS, PROJECTIONS, INFORMATION OR
MATERIALS NOW, HERETOFORE OR HEREAFTER FURNISHED OR MADE AVAILABLE TO MIDDLE
BAY IN CONNECTION WITH THIS AGREEMENT INCLUDING, WITHOUT LIMITATION, RELATIVE
TO SEISMIC OR GEOLOGICAL MATTERS, PRICING ASSUMPTIONS, OR QUALITY OR QUANTITY
OF HYDROCARBON RESERVES (IF ANY) ATTRIBUTABLE TO THE BOG PROPERTIES OR THE
ABILITY
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OR POTENTIAL OF THE BOG PROPERTIES TO PRODUCE HYDROCARBONS OR ANY OTHER MATTERS
CONTAINED IN THE PROPRIETARY DATA OR ANY OTHER MATERIALS FURNISHED OR MADE
AVAILABLE TO MIDDLE BAY BY BOG OR BY BOG'S AGENTS OR REPRESENTATIVES. ANY AND
ALL SUCH DATA, RECORDS, REPORTS, PROJECTIONS, INFORMATION AND OTHER MATERIALS
(WRITTEN OR ORAL) FURNISHED BY BOG OR OTHERWISE MADE AVAILABLE OR DISCLOSED TO
MIDDLE BAY ARE PROVIDED MIDDLE BAY AS A CONVENIENCE AND SHALL NOT CREATE OR GIVE
RISE TO ANY LIABILITY OF OR AGAINST BOG AND ANY RELIANCE ON OR USE OF THE SAME
SHALL BE AT MIDDLE BAY'S SOLE RISK TO THE MAXIMUM EXTENT PERMITTED BY LAW.
Section 3. REPRESENTATIONS OF MIDDLE BAY. Middle Bay represents to BOG
that:
(a) Middle Bay is a corporation duly organized and legally
existing under the laws of the State of Alabama. Middle Bay has full
power to enter into and perform its obligations under this Agreement and
has taken all appropriate action to authorize entering into this Agreement
and performance of its obligations hereunder. Neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, nor the compliance with the terms hereof, will result
in any default under any material agreement or instrument to which Middle
Bay is a party or by which Middle Bay is bound, or violate any order,
writ, injunction, decree, statute, rule or regulation applicable to Middle
Bay. This Agreement constitutes the legal, valid and binding obligation
of Middle Bay, enforceable in accordance with its terms, except as limited
by bankruptcy or other laws applicable generally to creditor's rights and
as limited by general equitable principles.
(b) There are no suits, actions, claims, investigations,
inquiries, proceedings or demands pending (or, to the best of Middle Bay's
knowledge, threatened) which affect the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
(c) Middle Bay is a knowledgeable purchaser, owner and
operator of oil and gas properties, has the ability to evaluate (and in
fact has evaluated or will evaluate, as the case may be) the BOG
Properties for acquisition, and is acquiring the BOG Properties and its
rights and interests hereunder for its own account and not with the intent
to make a distribution in violation of the Securities Act of 1933 as
amended (and the rules and regulations pertaining thereto) or in violation
of any other applicable securities laws, rules, or regulations.
Section 4. PREFERENTIAL RIGHTS AND CONSENTS.
BOG will utilize reasonable efforts, consistent with industry practices in
transactions of this type, to identify any Preferential Rights or Consents
which would be applicable to the BOG Properties and the transactions
contemplated hereby. In attempting to identify such Preferential Rights and
Consents, BOG is in no event obligated to go beyond its own records. BOG shall
have no obligation other than to so attempt to identify such Preferential
Rights or Consents and to give the notices required by such identified
Preferential Rights or Consents prior to the drilling of a Subject Well or
Subsequent Well on the applicable BOG Properties. To the extent a Preferential
Right applicable to any BOG Property (or portion thereof) is properly exercised
prior to the execution of an Assignment covering such BOG Property in favor of
Middle Bay, any well located or proposed to be located on the lands covered by
such BOG Property shall not be considered a Subject Well for purposes hereof,
and Middle Bay shall have no obligation to pay or bear any BOG Drilling Costs
associated therewith; any share of BOG Drilling Costs paid by Middle Bay
relating to such well prior to the exercise of the subject Preferential Right
shall be reimbursed by BOG to Middle Bay. To the extent any Preferential Right
applicable to any BOG Property (or portion thereof) is identified after the
date of an Assignment to Middle Bay covering such BOG Property, and is further
validly and properly exercised by a third party or third parties after such
date, Middle Bay shall convey the specific BOG Property affected by such
Preferential Right to the exercising third party or third parties, and Middle
Bay shall be entitled, as its sole remedy against BOG, to any consideration
paid by such party or parties on account of the post- Assignment exercise of
any Preferential Right affecting the BOG Property. BOG and Middle Bay hereby
recognize that any Preferential Right shall apply only to the specific property
described in the instrument creating same, and shall in no event be construed
to apply to all, or any group of, the BOG Properties, other than the specific
property described in the instrument creating the Preferential Right. BOG
shall use reasonable commercial efforts to secure
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any Consent of which it becomes aware (whether such Consent was identified
before or after an Assignment was made covering the BOG Property burdened by
such Consent), and to the extent BOG so utilizes reasonable commercial efforts,
whether successful or not, Middle Bay shall have no legal redress against BOG
relating to any Consent (or the failure to obtain same). Prior to the drilling
of each Subject Well, at Middle Bay's request, Middle Bay will be given
reasonable access, in BOG's offices, to BOG's copies of the operating
agreements and BOG Participation Agreements affecting the drilling of such
Subject Well.
Section 5. MAINTENANCE OF UNIFORM INTEREST PROVISIONS.
It is hereby recognized that some of the BOG Properties may now be, or
hereafter become, subject to agreements (the "MUI Agreements") containing
maintenance of uniform interest provisions or similar restrictions against
assigning an interest in part, but less than all, of the contract area covered
by such agreement. In this connection, BOG undertakes to use reasonable
commercial efforts to secure waivers from the other parties to each MUI
Agreement that will allow Assignments to be made hereunder. In order to secure
these waivers, BOG may agree that any separate measurement and/or storage
facilities necessitated by an assignment by BOG to Middle Bay of an interest in
part, but less than all, of the contract area covered by the applicable MUI
Agreement shall be arranged and paid for in equal shares by BOG (50%) and
Middle Bay (50%). BOG and Middle Bay further agree that any other costs,
liabilities, damages or obligations, of whatever kind or character, arising
out of or relative to any maintenance of uniform interest or similar provision
contained in an MUI Agreement shall be borne and paid for in equal shares by
BOG (50%) and Middle Bay (50%).
Section 6. PARTICIPATION IN BOG DRILLING COSTS BY MIDDLE BAY.
Middle Bay shall have the obligation to fund 25% of the BOG Drilling Costs
associated with each Subject Well. The election whether or not to participate
in the drilling of any particular well, and thus whether such well becomes a
Subject Well hereunder, will be exercised in the sole and absolute discretion
of BOG; upon an election by BOG to participate in the drilling of any
particular Subject Well, Middle Bay's obligation to pay 25% of the BOG Drilling
Costs associated with such Subject Well shall become absolute. The Parties
recognize and agree that anything to the contrary contained herein
notwithstanding, in the event that Middle Bay's share of BOG Drilling Costs
have been forwarded to the drilling operator for a Subject Well prior to the
expiration of the Agreement Term, Middle Bay's responsibility to fund 25% of
the BOG Drilling Costs associated with such Subject Well shall continue despite
the termination of the Agreement Term.
Section 7. COMPLETION ELECTIONS.
Middle Bay shall have the obligation to fund 12.5% of the BOG Completion
Costs associated with each Subject Well. In the event there is a separate
Completion point election relative to any particular Subject Well, BOG shall,
in its sole and absolute discretion, make such election for itself and for
Middle Bay. Any election by BOG to Complete or not to Complete any Subject
Well shall for all purposes be binding upon Middle Bay, the same as if Middle
Bay had also made the same election. Middle Bay shall have the obligation to
fund a 12.5% share of all BOG Completion Costs associated with any Subject
Well. The Parties recognize and agree that anything to the contrary contained
herein notwithstanding, in the event that Middle Bay's share of BOG Drilling
Costs have been forwarded to the drilling operator for a Subject Well prior to
the expiration of the Agreement Term, Middle Bay's responsibility to fund 25%
of the BOG Drilling Costs and 12.5% of the BOG Completion Costs associated with
such Subject Well shall continue despite the termination of the Agreement Term.
Section 8. FUNDING AND PAYMENT OBLIGATIONS
(a) April Funding.
(i) On or prior to the date hereof, BOG has provided to
Middle Bay an estimate, determined in BOG's reasonable discretion,
of all BOG Drilling Costs related to Subject ▇▇▇▇▇ and all BOG
Completion Costs relating to Subject ▇▇▇▇▇ for which costs are
estimated to be incurred or advanced during the calendar month of
April, 1996.
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(ii) Contemporaneously with the execution of this
Agreement, Middle Bay shall wire transfer to BOG's Account the sum
of $249,791.00 (the "April Deposit"), being Middle Bay's 25% share
of the estimated BOG Drilling Costs related to Subject ▇▇▇▇▇ and
Middle Bay's 12.5% share of BOG Completion Costs related to
Subject ▇▇▇▇▇ which costs are expected to be incurred or advanced
during the calendar month of April, 1996, in accordance with the
estimate provided in accordance with (i) above. BOG shall then
pay when due, out of and to the extent of the April Deposit, the
share of BOG Drilling Costs relating to Subject ▇▇▇▇▇ and BOG
Completion Costs relating to Subject ▇▇▇▇▇ actually incurred and
charged to the account of Middle Bay. The balance of the April
Deposit which has not been incurred and paid for Middle Bay's
share of BOG Drilling Costs or BOG Completion Costs will be
reflected on the books of BOG as a payable to Middle Bay until
such time as it is applied against Middle Bay's share of the BOG
Drilling Costs and BOG Completion Costs relating to Subject ▇▇▇▇▇.
(b) The Initial Period.
(i) On or prior to the date hereof, BOG has provided
to Middle Bay an estimate, determined in BOG's reasonable
discretion, of all BOG Drilling Costs relating to Subject ▇▇▇▇▇
and all BOG Completion Costs relating to Subject ▇▇▇▇▇ estimated
to be incurred or advanced for the period starting on May 1, 1996
and ending on June 30, 1996 (the "Initial Period").
(ii) Contemporaneously with the execution of this
Agreement, Middle Bay shall deposit into the Escrow Account the
sum of $233,975.00 (the "Initial Deposit"), representing the sum
of Middle Bay's 25% share of the estimated BOG Drilling Costs
relating to Subject ▇▇▇▇▇ for the Initial Period (the "Drilling
Cost Portion") and Middle Bay's 12.5% share of BOG Completion
Costs relating to Subject ▇▇▇▇▇ for the Initial Period (the
"Completion Cost Portion") estimated to be incurred or advanced
during the Initial Period. Such deposit shall be made in
immediately available funds.
(iii) It is hereby recognized that the Initial Deposit
was calculated based on estimated BOG Drilling Costs relating to
Subject ▇▇▇▇▇ and estimated BOG Completion Costs relating to
Subject ▇▇▇▇▇ for the Initial Period. BOG shall have the right
from time to time during the Initial Period to revise its estimate
of BOG Drilling Costs relating to Subject ▇▇▇▇▇ and/or BOG
Completion Costs relating to Subject ▇▇▇▇▇ upward. To the extent
that the Deposit Balance is (or is reasonably estimated by BOG to
be) less at any particular time than the sum of Middle Bay's 25%
share of the revised estimate of BOG Drilling Costs relating to
Subject ▇▇▇▇▇ for the Initial Period, and Middle Bay's 12.5% share
of the revised estimate of BOG Completion Costs relating to
Subject ▇▇▇▇▇ for the Initial Period, Middle Bay shall deposit
into the Escrow Account funds representing 25% of the portion of
the estimated shortfall attributable to BOG Drilling Costs
relating to Subject ▇▇▇▇▇ and 12.5% of the portion of the
estimated shortfall attributable to BOG Completion Costs relating
to Subject ▇▇▇▇▇ (which funds shall constitute a Shortfall
Deposit); such Shortfall Deposit shall be made by Middle Bay, in
immediately available funds, into the Escrow Account, within 15
days after receipt by Middle Bay of a written request for the
subject Shortfall Deposit.
(iv) On or before the 25th day of each calendar month
within the Initial Period BOG shall provide Middle Bay with an
estimate, determined in BOG's reasonable discretion, of all BOG
Drilling Costs relating to Subject ▇▇▇▇▇ and all BOG Completion
Costs relating to Subject ▇▇▇▇▇ estimated to be incurred or
advanced during the next succeeding calendar month. The amount of
each such estimate shall, however, be determined giving due credit
to any BOG Account Balance from the previous month that is
expected to remain unused and that further is not earmarked by BOG
for payment of Middle Bay's share of BOG Drilling Costs relating
to Subject ▇▇▇▇▇ and/or BOG Completion Costs relating to Subject
▇▇▇▇▇ for such previous month. On or before the first day of the
next succeeding calendar month the Bank of Oklahoma shall, upon
receipt from BOG of a copy of the same written estimate described
above, cause Middle Bay's 25% share of the BOG Drilling Costs
relating to Subject ▇▇▇▇▇ and Middle Bay's 12.5% share of the BOG
Completion Costs relating to Subject ▇▇▇▇▇ estimated by BOG to be
incurred or advanced during the next calendar month, to be
dispersed from the Escrow Account into the BOG Account by wire
transfer, in immediately available funds. BOG shall utilize such
funds to
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pay, when due, out of and to the extent of such deposit, Middle
Bay's 25% share of the estimated BOG Drilling Costs relating to
Subject ▇▇▇▇▇ and Middle Bay's 12.5% share of the estimated BOG
Completion Costs relating to Subject ▇▇▇▇▇ which are incurred
during such next calendar month. The balance of each monthly
deposit which has not been incurred and paid for Middle Bay's
share of BOG Drilling Costs or BOG Completion Costs will be
reflected on the books of BOG as a payable to Middle Bay until
such time as it is applied against Middle Bay's share of the BOG
Drilling Costs and BOG Completion Costs relating to Subject ▇▇▇▇▇.
(c) Subsequent Periods.
(i) Within forty-five days of the first day of each
Subsequent Period, BOG shall provide to Middle Bay a written
estimate, determined in BOG's reasonable discretion, of the BOG
Drilling Costs relating to Subject ▇▇▇▇▇ and BOG Completion Costs
relating to Subject ▇▇▇▇▇ for such Subsequent Period.
(ii) On or before 30 days before the first day of each
Subsequent Period, Middle Bay shall deposit into the Escrow
Account an amount (the "Subsequent Deposit") representing the sum
of Middle Bay's 25% share of the estimated BOG Drilling Costs
relating to Subject ▇▇▇▇▇ for such Subsequent Period and Middle
Bay's 12.5% share of the estimated BOG Completion Costs relating
to Subject ▇▇▇▇▇ expected to be incurred or advanced during such
Subsequent Period. The amount of each Subsequent Deposit shall,
however, be determined giving due credit to any Account Balance
that is expected to remain unused from a previous period (i.e.,
from the Initial Period or a prior Subsequent Period, as the case
may be) and that further is not earmarked by BOG for payment of
Middle Bay's share of BOG Drilling Costs relating to Subject ▇▇▇▇▇
and/or BOG Completion Costs relating to Subject ▇▇▇▇▇ for such
previous period. Such deposit shall be made, in immediately
available funds, into the Escrow Account.
(iii) It is hereby recognized that each Subsequent
Deposit shall be calculated based on estimated BOG Drilling Costs
relating to Subject ▇▇▇▇▇ and BOG Completion Costs relating to
Subject ▇▇▇▇▇ for the applicable Subsequent Period. BOG shall
have the right from time to time during each Subsequent Period to
revise its estimates of BOG Drilling Costs relating to Subject
▇▇▇▇▇ and/or BOG Completion Costs relating to Subject ▇▇▇▇▇ for
such Subsequent Period upward. To the extent that the Account
Balance is (or is reasonably estimated by BOG to be) less at any
particular time than the sum of Middle Bay's 25% share of the
revised estimate of BOG Drilling Costs relating to Subject ▇▇▇▇▇
for the applicable Subsequent Period and Middle Bay's 12.5% share
of the revised estimate of BOG Completion Costs relating to
Subject ▇▇▇▇▇ for such Subsequent Period, Middle Bay shall deposit
into the Escrow Account funds (which shall constitute a Shortfall
Deposit) representing 25% of the portion of the estimated
shortfall attributable to BOG Drilling Costs relating to Subject
▇▇▇▇▇ and 12.5% of the portion of the estimated shortfall
attributable to BOG Completion Costs relating to Subject ▇▇▇▇▇;
such deposit shall be made by Middle Bay, in immediately available
funds, within 15 days after receipt by Middle Bay of a written
request for the Shortfall Deposit.
(iv) On or before the 25th day of each calendar month
occurring within the applicable Subsequent Period, BOG shall
provide Middle Bay with an estimate, determined in BOG's
reasonable discretion, of all BOG Drilling Costs relating to
Subject ▇▇▇▇▇ and all BOG Completion Costs relating to Subject
▇▇▇▇▇ estimated to be incurred or advanced during the next
succeeding calendar month. The amount of each such estimate
shall, however, be determined giving due credit to any BOG Account
Balance from the previous month that is expected to remain unused
and that further is not earmarked by BOG for payment of Middle
Bay's share of BOG Drilling Costs relating to Subject ▇▇▇▇▇ and/or
BOG Completion Costs relating to Subject ▇▇▇▇▇ for such previous
month. On or before the first day of the next succeeding
calendar month the Bank of Oklahoma shall, upon receipt from BOG
of a copy of the same written estimate described above, cause
Middle Bay's 25% share of the BOG Drilling Costs relating to
Subject ▇▇▇▇▇ and Middle Bay's 12.5% share of BOG Completion Costs
relating to Subject ▇▇▇▇▇ estimated by BOG to be incurred or
advanced during the next calendar month, to be dispersed
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from the Escrow Account into the BOG Account by wire transfer, in
immediately available funds. BOG shall utilize such funds to pay,
when due, out of and to the extent of such deposit, Middle Bay's
25% share of the estimated BOG Drilling Costs relating to Subject
▇▇▇▇▇ and Middle Bay's 12.5% share of BOG Completion Costs
relating to Subject ▇▇▇▇▇ which are incurred during the such next
calendar month. The balance of each monthly deposit which has not
been incurred and paid for Middle Bay's share of BOG Drilling
Costs or BOG Completion Costs will be reflected on the books of
BOG as a payable to Middle Bay until such time as it is applied
against Middle Bay's share of the BOG Drilling Costs and BOG
Completion Costs relating to Subject ▇▇▇▇▇.
(d) Reporting. On or before a date that is Forty-five (45)
days after expiration of the previous period (i.e., the Initial Period or
a prior Subsequent Period, as the case may be), BOG shall provide to
Middle Bay a statement reflecting, on a well-by-well basis, application of
the funds attributable to Middle Bay's share of BOG Drilling Costs
relating to Subject ▇▇▇▇▇ and BOG Completion Costs relating to Subject
▇▇▇▇▇ for the previous period; such statement shall be based on actual
numbers, where available, and on estimates, where actuals are not
available.
Section 9. ASSIGNMENTS AND SUBSEQUENT ▇▇▇▇▇.
(a) Assignments. BOG shall execute an Assignment in favor of
Middle Bay covering each Subject Well that is Completed as a producer of
oil, gas and/or associated hydrocarbons; any such Assignment shall be made
on the later to occur of (i) thirty business days after the end of the
calendar quarter during which the Subject Well was Completed, and (ii)
thirty business days after BOG secures assignment from a third party of
all or any portion of the interest in the Subject Well it is obligated to
assign to Middle Bay hereunder. Under each Assignment, BOG shall assign
to Middle Bay an undivided 12.5% interest in and to the BOG Properties
related to (A) the wellbore of any particular Subject Well that is
Completed as a producer of oil, gas and/or associated hydrocarbons, and in
and to the right to produce oil, gas and/or associated hydrocarbons
therefrom, and (B) subject to the limitations and restrictions set forth
in subsection 9(b), below, the Drilling and Production Unit allocable to
such Subject Well. Each Assignment shall be made effective on or before
the date of first production from the Subject Well under instrument in
substantially the form attached hereto as Exhibit C. Notwithstanding any
provision hereof to the contrary, BOG shall not be obligated to execute
any Assignment to Middle Bay hereunder upon the occurrence and during the
continuance of a material breach by Middle Bay of any representation,
warranty, covenant or other agreement herein contained. The interest
assigned to Middle Bay under any Assignment (the "Assigned Interests")
shall be burdened by an overriding royalty interest in favor of BOG (the
"BOG ORRI") in the same proportions as the interests of the participants
under the BOG Participation Agreement(s) relating to such Assigned
Interests are burdened by an overriding royalty interest created or
reserved in favor of BOG pursuant to the applicable BOG Participation
Agreement(s). The BOG ORRI shall be calculated in the same manner, and
shall bear the same costs, expenses and taxes, as the overriding royalty
interest of BOG burdening the interests of the other participants under
the BOG Participation Agreements; provided, however, that in the event
that the BOG ORRI would reduce Middle Bay's net revenue interest in any of
the BOG Properties included within the Drilling and Production Unit of a
Subject Well below 75%, proportionately reduced to Middle Bay's interest
in the BOG Properties, with respect to those BOG Properties the amount of
the BOG ORRI shall be reduced to an amount that is equal to the positive
difference, if any, between 25% and the total of all existing royalty and
overriding royally interests burdening such BOG Properties. Any Assigned
Interests shall further bear their proportionate share of any (i) rights
of reversion or conversion in favor of third parties that do or may result
in the reduction of BOG's interest in the Assigned Interests or the
alteration of such interest (e.g. a back-in right under a farmout), and
(ii) royalties, overriding royalties, production payments and any other
burdens against BOG's interest in, or share of production from, the
Assigned Interests, to the extent same are in existence or owing under
documentation in existence as of the date the Assignment is made.
(b) Subsequent ▇▇▇▇▇. Any well drilled or commenced to be
drilled, whether during or at any time after expiration of the Agreement
Term, on acreage and to depths included within the Drilling and Production
Unit (or on lands pooled or unitized therewith) for a Subject Well shall
be considered a "Subsequent Well" for all purposes hereof.
Notwithstanding any provision hereof to the contrary:
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(i) In the event that both Middle Bay and BOG elect to
participate under the applicable Participation Agreement, joint
operating agreement or similar agreement governing joint
operations on any Drilling and Production Unit in the drilling of
any particular Subsequent Well, Middle Bay shall have the
obligation to fund the sum of (A) 12.5% of BOG's share of all
Drilling Costs associated with such Subsequent Well (the "BOG
Carry Amount") and (B) Middle Bay's own share of the Drilling
Costs associated with such Subsequent Well. Upon an election by
both Middle Bay and BOG to participate in the drilling of any
particular Subsequent Well, Middle Bay's obligation to pay all BOG
Carry Amounts associated with such Subsequent Well shall become
absolute. Middle Bay shall pay over to BOG all BOG Carry Amounts
if and when incurred by BOG; provided that Middle Bay shall have
15 business days after receipt from BOG of an invoice for any
particular BOG Carry Amounts to submit payment for same, in
immediately available funds, to BOG.
(ii) In the event that Middle Bay fails to timely pay
any BOG Carry Amount within 15 days of Middle Bay's receipt of
written notice of such default from BOG, in addition to, and
without limitation of any remedies that may be available to BOG at
law or in equity, at BOG's option Middle Bay shall automatically
and in perpetuity forfeit to BOG all of Middle Bay's right, title
and interest, whether legal or equitable, vested or contingent, in
and to the entire wellbore of the Subsequent Well to which such
BOG Carry Amount relates, together with any right to oil, gas or
other substances that may be produced therefrom and any proceeds
related thereto, subject only to any superior rights of third
parties under any Participation Agreement, joint operating
agreement or other agreement governing joint operations on the
relevant Drilling and Production Unit to which both Middle Bay and
BOG are parties or are otherwise bound.
(iii) Notwithstanding any provision hereof to the
contrary, in the event that any particular Subsequent Well has
allocated to it a drilling and spacing unit or a proration or
pooled unit, as the case may be, that includes acreage outside the
aerial confines of the Drilling and Production Unit related to
such Subsequent Well (the "Outside Lands"), Middle Bay shall in no
event be entitled to any right, title or interest in (A) any such
Outside Lands, or (B) any production or proceeds allocable to such
Outside Lands under applicable law, rule, order or regulation or
otherwise under any voluntary pooling, unitization or similar
agreement to which BOG is a party or is otherwise bound; instead,
Middle Bay shall be limited to its share of production (or the
proceeds thereof) as derived from its right, title and interest
only in the pooled unit, drilling and spacing unit or proration
unit, as the case may be, that is made up of lands from the
Drilling and Production Unit. Further, BOG's share of Drilling
Costs utilized in the computation of BOG Carry Amounts shall be
determined only by reference to the proportionate share of any
pooled unit, drilling and spacing unit or proration unit, as the
case may be, that is made up of lands included in the Drilling and
Production Unit. By way of example, assume that a particular
Drilling and Production Unit is comprised of Tract A, containing
320 acres, and Tract B, containing 320 acres; Middle Bay owns a
12.5% share of the oil, gas and other mineral leasehold interest
in Tracts A and B and BOG owns the remaining 87.5%. Further
assume that a Subsequent Well is drilled on Tract A, and both
Middle Bay and BOG elect to participate in the drilling of such
well. Tract A, constituting Drilling and Production Unit lands,
is then pooled or otherwise combined with Tract C, constituting
Outside Lands; BOG owns a 100% interest in the oil, gas and/other
mineral leasehold interest in Tract C. BOG's share of the
Drilling Costs for the Subsequent Well is $1,000,000. Under these
facts, Middle Bay would be entitled to 6.25% (i.e. 12.5% x 50%) of
the production and allocable proceeds from the subject Subsequent
Well, prior to deduction of royalties and other burdens, assuming
production is allocable as between Tracts A and B equally (i.e.,
on a surface acreage basis); if production is allocable as between
Tracts A and C other than on a surface acreage basis (e.g., based
on acre-feet), then Middle Bay's share of production from the
Subsequent Well, again derived only from its 12.5% interest in
Tract A, will be adjusted accordingly. Middle Bay's allocable
share of Drilling Costs under these facts would be $125,000 (i.e.,
the sum of (a) 12.5% x 50% x $1,000,000, and (b) the BOG Carry
Amount, which is 12.5% x 50% x $1,000,000), assuming that Drilling
Costs are allocable as between Tracts A and B on a surface acreage
basis; if Drilling Costs are allocable other than on a surface
acreage basis, Middle Bay's allocable share thereof, again
delivered from both its 12.5% interest in Tract A and from its
obligation to pay and bear the BOG Carry Amount, shall be adjusted
accordingly.
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(iv) The provisions of this subsection 9(b) shall be
binding upon and shall enure to the benefit of BOG and Middle Bay,
and their respective successors and assigns. Any assignment or
other transfer by Middle Bay of any right, title or interest in
any Drilling and Production Unit established pursuant to this
Agreement shall be made expressly subject to the terms of this
Section 9(b), and the transferee shall expressly agree to assume
and be bound by the terms of this subsection 9(b); any attempted
assignment or other transfer by Middle Bay that is not in
compliance with the foregoing shall be void.
Section 10. CONDITIONS PRECEDENT AND TERMINATION RIGHTS.
The obligation of BOG under this Agreement to allow Middle Bay to
participate in the drilling of any particular Subject Well, and to receive
assignment of an undivided 12.5% of BOG's interest therein, is subject to the
fulfillment of each of the following conditions, unless any one or more of same
are waived, in whole or in part, by BOG:
a. Each and every representation of Middle Bay under this
Agreement shall be true and accurate in all material respects as of the
date when made and shall be deemed to have been made again at and as of
the time of the proposed drilling of each Subject Well, and shall at and
as of the proposed drilling of each Subject Well be true and accurate in
all material respects except as to changes specifically contemplated by
this Agreement or consented to by BOG.
b. Middle Bay shall have performed and complied in all
material respects with (or compliance therewith shall have been waived by
BOG) each and every covenant, agreement and condition required by this
Agreement to be performed or complied with by Middle Bay, including
without limitation Middle Bay shall have timely performed its funding and
payment obligations under Section 8 hereof.
c. No suit, action or other proceedings shall, on the date
of the proposed drilling of each Subject Well, be pending or threatened
against Middle Bay or BOG before any court or governmental agency seeking
to restrain, prohibit, or obtain damages or other relief in connection
with the consummation of the transactions contemplated by this Agreement,
except to the extent that such suit, action or other proceedings arise, in
whole or in part out of any action or inaction of BOG in breach of or
otherwise in derogation of this Agreement.
Notwithstanding any provision hereof to the contrary, in the event Middle Bay
fails at any time or from time to time, within 15 days after receipt of an
invoice or other written demand by BOG, to make any payment owing to BOG
hereunder or to otherwise satisfy any funding obligation hereunder, BOG shall
have the right, exercisable in its sole and absolute discretion, to terminate
this Agreement, in which case BOG shall be authorized to receive from Middle
Bay the Termination Amount. Middle Bay shall wire transfer to an account or
accounts designated by BOG the Termination Amount within fifteen business days
after receipt by Middle Bay of BOG's written notice that this Agreement has
been terminated pursuant to the preceding sentence of this Section 10. MIDDLE
BAY AND BOG ACKNOWLEDGE THAT THE EXTENT OF DAMAGES TO BOG OCCASIONED BY MIDDLE
BAY'S FAILURE TO PROMPTLY PERFORM ITS PAYMENT OR FUNDING OBLIGATIONS HEREUNDER
WOULD BE IMPOSSIBLE OR EXTREMELY DIFFICULT TO ASCERTAIN AND THAT THE AMOUNT OF
THE TERMINATION AMOUNT IS A FAIR AND REASONABLE ESTIMATE OF SUCH DAMAGES UNDER
THE CIRCUMSTANCES AND DOES NOT CONSTITUTE A PENALTY. Middle Bay hereby
expressly recognizes that BOG has a legal right, but not the obligation, to
set-off all or any portion of the Account Balance against Middle Bay's
obligation to pay the Termination Amount.
Section 11. ASSUMPTION AND REIMBURSEMENT.
Any assignment made by BOG to Middle Bay hereunder shall be made expressly
subject to any applicable Participation Agreement(s), and any joint operating
agreements related thereto. Middle Bay agrees to be bound by the terms of any
such Participation Agreement(s) and any related joint operating agreements, and
hereby agrees, effective as of the effective time of the subject Assignment, to
expressly assume a 12.5% share of BOG's obligations under the applicable
Participation Agreements and joint operating agreement(s), insofar as they
pertain to the
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particular Assigned Interests and any related facilities. Nothing contained in
this Section 11 or elsewhere in this Agreement or any Assignment executed
pursuant hereto shall be construed to afford Middle Bay any right (and Middle
Bay shall have no right) to participate in production from or proceeds
attributable to any well, other than a Subject Well or a Subsequent Well,
whether drilled under the terms of any particular Participation Agreement
and/or joint operating agreement or otherwise. In addition, nothing contained
in this Section 11 or elsewhere in this Agreement or any Assignment executed
pursuant hereto shall be construed to afford Middle Bay any right (and Middle
Bay shall have no right) to participate, as the result of the operation of an
area of mutual interest or similar provision, in any interests acquired by
third party participants under any Participation Agreement or joint operating
agreement.
Section 12. INDEMNIFICATIONS.
(a) INDEMNIFICATIONS BY BOG. BOG agrees to indemnify and
hold harmless Middle Bay and its officers, directors, employees, agents,
and representatives from and against any and all claims, obligations,
actions, liabilities, damages, or expenses of any kind or character
arising out of or resulting from any agreement, arrangement or
understanding alleged to have been made by, or on behalf of, such party
with any broker or finder in connection with this Agreement or the
transactions contemplated hereby.
(b) INDEMNIFICATIONS BY MIDDLE BAY.
(i) GENERAL AND ENVIRONMENTAL. NOTWITHSTANDING ANY
PROVISION HEREOF TO THE CONTRARY, MIDDLE BAY SHALL, FROM AND AFTER
THE EFFECTIVE DATE OF EACH ASSIGNMENT, AGREE TO INDEMNIFY AND HOLD
BOG, ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS AND
REPRESENTATIVES (HEREIN COLLECTIVELY CALLED THE "BOG INDEMNIFIED
PARTIES") HARMLESS FROM AND AGAINST ANY AND ALL CLAIMS,
OBLIGATIONS, ACTIONS, LIABILITIES, DAMAGES, OR EXPENSES, INCLUDING
WITHOUT LIMITATION COURT COSTS AND ATTORNEYS' FEES (HEREIN
COLLECTIVELY CALLED "CLAIMS"), TO THE EXTENT SUCH CLAIMS AROSE OUT
OF THE PHYSICAL CONDITION, OWNERSHIP AND/OR OPERATION OF THE BOG
PROPERTIES COVERED BY THE SUBJECT ASSIGNMENT INCLUDING, WITHOUT
LIMITATION, ANY CLAIMS ARISING UNDER, OR AS A RESULT OF VIOLATION
OF, APPLICABLE ENVIRONMENTAL LAWS, WHETHER SUCH CLAIMS AROSE
BEFORE, ON, OR AFTER THE APPLICABLE EFFECTIVE DATE, AND WHETHER
DUE, IN WHOLE OR IN PART, TO THE NEGLIGENCE OR STRICT LIABILITY OF
BOG, OTHER THAN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT.
(ii) COMMISSIONS. Middle Bay agrees to indemnify and
hold harmless BOG and the other BOG Indemnified Parties, from and
against any and all claims, obligations, actions, liabilities,
damages, or expenses of any kind or character arising out of or
resulting from any agreement, arrangement or understanding alleged
to have been made by, or on behalf of, such party with any broker
or finder in connection with this Agreement or the transactions
contemplated hereby.
Section 13. WELL DATA AND INFORMATION.
For each Subject Well, BOG shall provide Middle Bay with the following:
(i) one copy of the AFE submitted for the Subject Well with an estimated
working interest and net revenue interest break down; (ii) one copy of each
drilling and completion report received by BOG for the Subject Well; (iii) one
copy of each well log received by BOG for the Subject Well; and (iv) all data
and information received regarding the testing and analysis of the well. With
respect to each Subject Well which is completed as a producer, following the
completion of such Subject Well BOG shall provide Middle Bay with a copy of
each of the following documents which are in BOG's possession (i) the BOG
Participation Agreements which affect Middle Bay's interests in the Drilling
and Production Unit for the Subject Well, (ii) the operating agreements which
govern the Drilling and Production Unit for the Subject Well, and (iii) a copy
of each oil and gas lease and farm-in agreement which covers minerals which are
located within the Drilling and Production Unit for the Subject Well; provided,
however, that Middle Bay shall reimburse BOG for any third party copying
charges which are incurred to generate such copies. In addition, with respect
to each
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Subject Well which is completed as a producer, subject to any contractual
restrictions that are placed on such interpretations pursuant to the terms of
the applicable Participation Agreement(s) or the applicable seismic acquisition
agreement, BOG shall provide Middle Bay with one copy of a 3-D interpretational
map generated from Seismic Data by BOG for each of the targeted zone(s) in such
Subject Well (if a 3-D interpretational map has been generated by BOG for such
zone), limited in geographical extent to 1/2 mile of the outside perimeter of
the Drilling and Production Unit for the Subject Well. Under no circumstances
shall Middle Bay acquire any ownership interest or license in any of the
Seismic Data.
Section 14. NON-COMPETE.
During the Agreement Term and continuing for a period of 5 years
thereafter, unless BOG agrees in writing otherwise, except as provided in this
Agreement, neither Middle Bay, nor any Affiliate of Middle Bay, nor any broker
or other representative acting on behalf of Middle Bay shall own, purchase or
otherwise acquire any interest in the oil, gas and/or other minerals in, under
or that may be produced from any lands located within any of the following
described lands (hereinafter collectively referred to as the "Non-Compete
Lands"): (1) any lands located within one mile of the outside perimeter of the
drilling and/or proration units which are established for each Subject Well;
and (2) the lands which must be the subject of a non-compete agreement as the
result of the disclosure of 3-D interpretational maps or the assignment of
interests in BOG Properties pursuant to the terms of a Participation Agreement
which is applicable to BOG Properties which are to be assigned to Middle Bay
pursuant to the terms of this Agreement. The interests Middle Bay is precluded
hereunder from owning or acquiring include leasehold working interests, mineral
fee interests or servitudes, overriding royalty interests, royalty interests,
production payments, net profits interests, and any other interests, whether
similar or dissimilar, in the oil, gas and/or other minerals in, under or that
may be produced from any part of the Non-Compete Lands. In the event that
Middle Bay, any Affiliate of Middle Bay or any broker or other representative
acting on behalf of Middle Bay or any Affiliate of Middle Bay owns or acquires
any interest in breach of this Section 14, BOG shall, in addition to any other
remedies it may have at law or in equity, have the right, exercisable in its
sole discretion, to secure from Middle Bay, an Affiliate of Middle Bay and/or
any broker or other representative acting on behalf of Middle Bay or any
Affiliate of Middle Bay, as the case may be, an assignment, free of all cost
and expense, covering the entire interest so owned or acquired in breach of
this Section 14. The provisions of this Section 14 shall survive the
expiration of the Agreement Term and any earlier termination of this Agreement.
Anything to the contrary contained in this Section 14 notwithstanding, the
parties hereto agree that Middle Bay shall not be precluded from acquiring
interests from a third party which is a party to a BOG Participation Agreement,
provided that the interest acquired by Middle Bay from such third party is
subject to the BOG Participation Agreement to which such third party is a
party.
Section 15. ACCOUNTING MATTERS.
On or before a date that is 30 calendar days after the earlier of
expiration of the Agreement Term or termination of this Agreement under Section
10 hereof, BOG shall issue to Middle Bay a statement reflecting the BOG Account
Balance as of the statement date. Along with said statement, BOG shall,
subject to any right of set-off afforded BOG hereunder, return to Middle Bay
the BOG Account Balance, less that portion which BOG believes should be
retained by BOG in order to satisfy Middle Bay's share of any BOG Drilling
Costs or BOG Completion Costs still to be paid or incurred hereunder. On or
before a date that is 120 calendar days after the earlier of expiration of the
Agreement Term or termination of this Agreement under Section 10 hereof, BOG
shall return, subject to any right of set-off afforded BOG hereunder, to Middle
Bay any of the remaining BOG Account Balance, to the extent it exceeds an
amount sufficient to cover Middle Bay's share of any then-accrued BOG Drilling
Costs or BOG Completion Costs.
Section 16. INSURANCE.
Middle Bay agrees to be bound by any election made by BOG concerning
insurance coverage relative to any particular Subject Well, and Middle Bay
shall pay a 12.5% share of what would otherwise be BOG's insurance costs
relative to such Subject Well and any related facilities. Prior to execution
of an Assignment covering such Subject Well, BOG shall make any insurance
elections for and on behalf of Middle Bay, and such election shall be binding
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upon Middle Bay, the same as if made by Middle Bay. For example, if BOG elects
to be covered by the operator's insurance relative to any particular Subject
Well, so will Middle Bay and if BOG decides to secure or utilize its own
insurance coverage relative to any particular Subject Well, Middle Bay's
interest in the Subject Well shall also rely upon such insurance coverage;
Middle Bay shall pay a 12.5% share of BOG's costs in securing insurance
coverage relative to any particular Subject Well. If BOG decides to secure or
utilize its own insurance coverage relative to a Subject Well, Middle Bay will
be named as an additional insured in the certificate issued for such coverage.
Section 17. NOTICES.
All notices and other communications required under this Agreement shall
(unless otherwise specifically provided herein) be in writing and be delivered
personally, by recognized commercial courier or delivery service (which
provides a receipt), by telex or telecopier (with receipt acknowledged), or by
registered or certified mail (postage prepaid), at the following addresses:
If to Middle Bay:
▇▇▇ ▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
or
▇.▇. ▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile # (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Mr. ▇▇▇▇ ▇▇▇▇▇▇▇
If to BOG:
▇▇▇▇▇▇▇ Oil & Gas, L.P.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Facsimile # (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇ ▇▇▇▇▇▇▇
and shall be considered delivered on the date of receipt. Either Middle Bay or
BOG may specify as its proper address any other post office address within the
continental limits of the United States by giving notice to the other party, in
the manner provided in this Section, at least two (2) business days prior to
the effective date of such change of address.
Section 18. SURVIVAL OF PROVISIONS.
All representations, warranties and indemnifications made herein by BOG
or Middle Bay shall survive in perpetuity the expiration of the Agreement Term
and any termination hereof under Section 10.
Section 19. DISCLAIMERS AND ELECTIONS.
The liabilities of the parties hereunder shall be several, not joint or
collective. It is not the intention of the parties to create, nor shall this
Agreement be deemed as creating, a joint venture, or a mining, tax or other
partnership or association or to render the parties liable as partners.
However, if for federal income tax purposes, this Agreement and the operations
hereunder are regarded as a partnership, each party thereby affected elects to
be excluded from the application of all of the provisions of Subchapter "K,"
Chapter 1, Subtitle "A," of the Internal Revenue Code of 1986, as amended
(hereinafter referred to as the "Code"), as permitted and authorized by Section
761 of the Code and the regulations promulgated thereunder. Should there be
any requirement that each party hereby affected give further evidence of this
election, each such party shall execute such documents and furnish such other
evidence as may be required by the federal Internal Revenue Service or as may
be necessary to evidence this election. No party shall give any notice or take
any other action inconsistent with the election made hereby. In making the
foregoing election, each party states that the income derived by such party
from operations hereunder can be adequately determined without the computation
of partnership income.
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Section 20. MISCELLANEOUS MATTERS.
a. Neither Middle Bay nor BOG shall assign or otherwise transfer
any rights, interests or obligations under this Agreement to any third
party without first obtaining the written consent of the other, which
consent may be either granted or withheld in the sole and absolute
discretion of the party being asked to grant consent; provided that
either of BOG or Middle Bay may freely transfer or otherwise dispose of
all of its rights, interests and obligations hereunder (i) by sale or
other transfer or disposition of all or substantially all of its assets
(whether or not covered hereby) to an Affiliate or (ii) otherwise by
merger, reorganization or consolidation. This Agreement shall be binding
upon and shall enure to the benefit of Middle Bay and BOG and their
respective permitted successors and assigns.
b. Each party shall bear and pay all expenses (including without
limitation attorneys' fees) incurred by it in connection with the
transaction contemplated by this Agreement.
c. This Agreement contains the entire understanding of the
parties hereto with respect to subject matter hereof and supersedes all
prior agreements, understandings, negotiations, and discussions among the
parties with respect to such subject matter. The descriptive headings
contained in this Agreement are for convenience only and shall not
control or affect the meaning or construction of any provision of this
Agreement. Within this Agreement words of any gender shall be held and
construed to cover any other gender, and words in the singular shall be
held and construed to cover the plural, unless the context otherwise
requires. Time is of the essence in this Agreement.
d. This Agreement may be amended, modified, supplemented,
restated or discharged (and provisions hereof may be waived) only by an
instrument in writing signed by the party against whom enforcement of the
amendment, modification, supplement, restatement or discharge (or waiver)
is sought.
e. Without limitation of BOG's right to be paid the Termination
Amount upon terms and conditions set forth in Section 10 above, BOG and
Middle Bay do hereby covenant and agree that the recovery by either party
hereto of any damages suffered or incurred by it as a result of any
breach by the other party of any provision of this Agreement shall be
limited to the actual damages suffered or incurred by the non-breaching
party as a result of the breach by the breaching party and in no event
shall the breaching party be liable to the non- breaching party for any
interest, consequential, special, exemplary or punitive damages suffered
or incurred by the non-breaching party as a result of the breach by the
breaching party.
f. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT THAT, TO THE EXTENT THAT THE LAW
OF A STATE IN WHICH A PORTION OF THE BOG PROPERTIES IS NOW OR HEREAFTER
LOCATED (OR WHICH IS OTHER APPLICABLE TO A PORTION OF THE BOG PROPERTIES
NECESSARILY GOVERNS, THE LAW OF SUCH STATE SHALL APPLY TO THAT PORTION OF
THE BOG PROPERTIES LOCATED IN (OR OTHERWISE SUBJECT TO THE LAWS OF) SUCH
STATE.
g. This Agreement may be executed in counterparts, all of which
are identical and all of which constitute one and the same instrument.
It shall not be necessary for BOG and Middle Bay to sign the same
counterpart and signature pages from different counterparts may be
combined to form masters of this Agreement.
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This Agreement is executed by the parties hereto on the date set
forth beneath the signature of each but is effective for all purposes as of
April 1, 1996.
▇▇▇▇▇▇▇ OIL & GAS, L.P.
By: ▇▇▇▇▇▇▇ Exploration Company
Its: Managing General Partner
By:/s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------
Name: ▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President / CEO
Date: April 3, 1996
MIDDLE BAY OIL COMPANY, INC.
By:/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: President
Date: April 3, 1996
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